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On June 29, 2015, Mark F. Leone (“Leone”) submitted a Letter of Acceptance, Waiver, and Consent (“AWC”) to settle allegations made by the Financial Industry Regulatory Authority, Inc. (“FINRA”). Currently, Leone is registered with Cambridge Investment Research, Inc.; however, FINRA alleged that while Leone was registered with Morgan Stanley, he exercised discretion in customer accounts without written authorization to do so. To settle the FINRA allegations, Leone submitted to censure, a fine of $5,000 and suspension for fifteen (15) business days. A copy of the FINRA AWC is available here.

Specifically, FINRA alleged that on March 10, 2014, Leone, effected five (5) discretionary transactions on customer accounts without first obtaining written authorization from the customers, or having the accounts accepted as discretionary at Morgan Stanley. According to Leone’s BrokerCheck Report, on April 3, 2014, Morgan Stanley terminated Leone for allegations regarding discretionary trading without written authorization. In response to those allegations, Leone stated, “five clients owned a stock and had a gain in the stock. The market was about to close and I was going out of town. I quickly entered sell orders to close the positions in the account. This generated a bunching report to Morgan Stanley.”

Bunching, or aggregating multiple executions into a single tape report, is prohibited under FINRA Rules Rules 6282(f), 6380A(f) and 6380B(h). Similarly, NASD Conduct Rule 2510(b), FINRA Rule 2010, and Morgan Stanley firm policies all prohibit registered representatives from exercising discretionary control over customer accounts without written authorization from that customer and firm approval. FINRA alleged that Leone lacked any authorization to make transactions in these customer accounts outside of one account where he was given insufficient verbal authorization. As such, Leone violated NASD Conduct Rule 2510(b) and FINRA Rule 2010.

On April 22, 2015, the Securities and Exchange Commission (“SEC”) filed a Complaint in the District Court for the United States Southern District of Indiana, Indianapolis Division (the “Complaint”), against Veros Partners, Inc., Matthew D. Habb, Jeffery B. Risinger, Veros Farm Loan Holding LLC, Tobin J. Senefeld, FarmGrowCap LLC, and PinCap LLC alleging that Veros Partners, Inc. and Mr. Habb, its president, propagated and executed a Ponzi scheme and “fraudulently raised at least $15 million from at least 80 investors … mostly from Veros’ own clients, in two separate farm loan offerings.”

The Complaint states that SEC seeks “to enjoin Defendants from raising additional investor funds, to prevent them from ensnaring more victims in their scheme, and to prevent the further dissipation of investor assets.” The SEC also seeks “the disgorgement of Defendants’ ill-gotten gains, as well as prejudgment interest and significant civil penalties.”

The Ponzi-scheme offerings took place from 2013 to 2014, when investors purchased securities issued by Veros Farm Loan Holding LLC and FarmGrowCap LLC, two companies run by Matthew D. Habb, Jeffrey B. Risinger and Tobin J. Senefeld. Investors were told that their funds would be used “to make short-term operating loans to farmers for the 2013 and 2014 growing seasons.” Although some funds were used for the stated purpose, most was used to cover the unpaid debt of the farms, and $7 million was used to pay investors in other, unrelated offerings. Further, over $800,000 went directly to Matthew D. Habb, Jeffrey B. Risinger and Tobin J. Senefeld for “success” and “interest rate spread” fees.

In another chapter of the continuing legal troubles facing UBS, AG and UBS Financial Services of Puerto Rico, Inc. (collectively “UBS”) for its marketing and sale of closed-end bond funds composed of Puerto Rican municipal debt (the “Puerto Rico Bond Funds”), two former UBS registered representatives, Jorge and Teresa Bravo (collectively, the “Bravos”), are suing the firm in an arbitration before the Financial Industry Regulatory Authority (“FINRA”) for its sales and management practices with respect to the Puerto Rico Bond Funds and are seeking $10 million in damages. Lax & Neville LLP has covered the developments in the Puerto Rico Bond Fund litigation extensively in our earlier blog posts and continues to investigate customer claims related to these investments. Links to those earlier posts may be found here, in chronological order: link 1, link 2, link 3, link 4, link 5.

The Bravos, who managed more than $ 120 million in client assets, were both senior vice presidents at UBS. According to news sources, the Bravos’ FINRA complaint alleges that UBS fraudulently maintained a conflict of interest, which it then concealed from its clients and the Bravos, in relation to its underwriting and marketing of the Puerto Rico Bond Funds. Through their FINRA complaint, the Bravos allege that UBS created a high-pressure environment to induce its registered representatives to sell more of the Puerto Rico Bond Funds to customers or risk being fired. The Bravos also allege that during that time, UBS cheated them out of money’s owed and ultimately forced them to leave the firm.

The UBS Puerto Rico Bond Funds have potentially cost investors billions of dollars in damages. If you have invested in the Puerto Rico Bond Funds with Jorge Bravo or Teresa Bravo, Contact Lax & Neville LLP today by calling 212-696-1999.